Anyone who wants to buy a gas station in California to operate, or even to own absentee, had better get an education about the business first, before beginning to evaluate offerings. The biggest challenge is that there are so many variables in this business that trying to make a choice by comparing gas stations on the market is usually an apples vs. oranges puzzle.
Do you want, and can you afford, to buy the property with the business? How large a business do you feel you can pay for and manage? Should the gas station also have a car wash on the premises? What about a deli, a repair shop, a convenience store? And the prospective buyer will need to decide whether he or she is more comfortable offering a name brand and working with one of the major oil companies, or taking over an independent station and buying from petroleum distributors who are not affiliated with any particular brand.
One way to start understanding some of the issues involved in buying into this industry is by thinking about some of the commonly held beliefs regarding the idea to buy a gas station.
Five of the most popular assumptions about gas station ownership are:
- You can determine a gas station's income by finding out how many gallons are pumped every month and multiplying that figure by the typical 20-cents-per-gallon mark-up added to the per-gallon amount the gas station owner pays to the distributor.
There is no merit to the "twenty cent per gallon" mark-up idea. And no standard way that a gas station owner prices the product. In fact pricing gasoline and diesel products is kind of an art, as well as a science. If your station is in the Mojave Desert 100 miles from the nearest competitor you probably can charge whatever you want and drivers who discover they are low on gas will have to pay your prices. Most stations, however, are in competitive markets and run the risk of losing business by charging too much for fuel, or losing money by not charging enough.
One reason price setting is not always an easy exercise is that it sometimes is smart to lose money on the sale of fuel if that strategy attracts, to the location, gas and diesel customers who may then pay for a car wash service, if there is one at the facility; or they patronize the station's convenience store if it has one - where the percentage of price mark-up can be substantially higher than any profits to be made at the pumps.
Buyer Hint: Focus on which gas stations generate the most profit
- A buyer should avoid a station with a repair garage unless he happens to be an auto mechanic.
Here's the facts: Some mechanics might make a good profit in a station that includes a repair facility, but most owners of a garage-equipped station think it's a better idea to rent out the facility and not have to deal with the problems associated with the vehicle repair business. One mechanic-gas station owner told me "there's more money to be made at the cash register in the office than with a wrench, under a car."
Buyer Hint: Even if you are a mechanic, calculate whether you might make more money by simply renting out the repair facility so you can concentrate on running the station.
- It's best to purchase a station that is unaffiliated with a large oil company. The independent station owner can buy from any fuel distributor who offers the best price and is not locked in to the costs charged by the oil company franchisor. And the owner of a Shell or Chevron or other oil company franchise is obligated to follow the company's strict rules and to participate in its marketing programs.
Fact: For some people, this is good advice. But it means the owner usually will miss a lot of business from holders of an oil company credit card who are in the habit of using it to buy fuel, especially since they receive incentives from those companies to do so. Besides, in the event of a leaky storage tank, the independent owner-operator is on the hook for the cost of dismantling the station, excavating the ground it used to sit on and replacing the fuel storage infrastructure. Then installing a new station. That expense, plus the loss of business for the weeks or months it takes to go through that process has put more than one independent station owner out of business. Franchisees working with oil companies usually can depend on the franchisor to absorb the cost of replacing fuel storage tanks.
Buyer Hint: One question a buyer should ponder is whether he or she would feel comfortable as a franchisee, or would he or she rather be truly independent.
- It makes sense to buy a gas station only if you can purchase the property with it.
In fact, there are hundreds of gas station owners in California who would disagree with that notion. They like the idea of paying rent and letting the property owner be responsible for mortgage and taxes expenses. One owner who carefully analyzed the difference between owning or renting came to the conclusion that the extra cash and mortgage debt that would be necessary to own the land on which her station was situated would generate such a substantial return if invested in other kinds of commercial property that it made more sense, financially, not to have "all her eggs were in one (gas station) basket."
Buyer Hint: Every situation is different. Do the math and determine which approach is most profitable and suitable for you.
- It's easy to determine what a gas station is worth, no matter what other businesses are associated with it, if the buyer simply learns the amount of the owner's discretionary earnings collected over the previous three years and calculates that figure with the industry multiple customarily used to vale that kind of business.
I've seen gas station buyers pay way more for a station than you might think it's worth. And I've seen the opposite, a buyer being unwilling to invest any amount close to what the seller claimed was a fair price based on the so-called industry average multiple. People in the retail petroleum industry and their business brokers have so many different ideas about what is an appropriate industry multiple to use in determining a "fair" price, that it's clear there is no industry multiple.
Buyer Hint: Your final decision will be partly a subjective one, rather than purely the result of ROI calculations. Consider the location of the business, condition of its equipment and terms of the deal.
If a prospective gas station buyer reviews these five assumptions related to making a purchase in this industry he or she may notice that they often are wrong. And yet, there are many exceptions when the buyer might be smart to purchase an independent station, buy the land with it and hire a manager so the buyer can work in the garage as a full time mechanic. The value of understanding these assumptions is to gain insight as to just how complex it can be to decide which gas station to buy. Understanding some of these circumstances, and considering the hints, is helpful in learning how to buy a gas station.
More Information Regarding California Gas Stations On BizBen:
All Gas Stations For Sale - Independent & Branded/Franchises In California
Gas Station Brokers & Agents
Gas Station Articles And Blog Posts - Topics On Buying And Selling
Resources For Buying & Selling California Gas Stations
About The Author: Peter Siegel, MBA is the Founder (of BizBen.com) consisting of business buyers, owner/sellers, business brokers, agents, intermediaries, and advisors (there are over 90,000 users, and 8,000+ listings (many of those gas stations for sale and wanted to buy postings on BizBen.com). To get signed up for California gas stations for sale and wanted to buy postings (Email Alerts) before they hit the market phone Peter Siegel (BizBen Director & gas station financing advisor and expert) direct at 866-270-6278.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Abdul Jobah, Business Broker, Central Valley, Kern County
As A Real Estate Agent, I offer my clients assistance with the sale or purchase of commercial properties and/or businesses. Please contact me if you are looking to sell or buy a Central Valley business. If at any time you have any questions please do not hesitate to call me at 661-703-3916.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Taj Randhawa, Business Broker Specialist - Gas Stations, Liquor Stores
If you are interested buying or selling a gas station, liquor store feel free to phone me for a consultation. My vast experience & specialization in gas stations & liquor stores helps me in serving my clients with full confidence, trust & sincerity. Serving Central Valley, SF Bay Area. 559-259-4247.
|Elizabeth McGovern: Escrow Services - SF Bay Area
McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
|Michael Davidson, Business Broker - Southern California
Los Angeles Business Broker providing M&A quality services for Small Business Owners. We leverage our technology and expertise to Simplify & Expedite the Business Sales Process. Matching the right buyer with the right business is how we define success.
|Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses
Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.
|Jack Oh, Business Broker - LA, Orange Counties
Business broker and real estate services in the Los Angeles and Orange County areas. 10 years experience with great negotiating skills. To sell a business or buy a business in the LA or Orange County Areas phone Jack and his team at 562-787-4989.
|Peter Siegel, MBA - SBA Loans, Non SBA Financing Assistance
For over 25 years I have provided niche business purchase financial advisory and loan placement services with SBA and Non-SBA Loans, Retirement Plan Conversions, Private Investors, etc. Financing amounts available: $20K to $7MM. Call today to get pre-qualified or receive financing: 866-270-6278.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
|Tips On Successfully Buying A Gas Station Business That Pumps Out Profits
Buyers who think they want to buy a gas station don't realize that finding the station to own in this industry & determining its fair price pose more complex problems than buying most types of small businesses. Peter Siegel, MBA (gas station financing expert at BizBen) at 866-270-6278 explains.
|Valuing A Business - Do You Add The Inventory Amount To The Price Or Not?
A business buyer asks how to handle the inventory amount in the purchase price of a business. Do you add the inventory value to the business value? Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor ) answers this question with the BizBen Network of advisors.
|What Factors Are Considered In Valuing A Small Business? Advisors Weigh In
Valuing a small business is not guess work. It's not what some other businesses of the same type may have or may not have been sold for, it's not even what a business owner "feels" they want or deserve. It is a formula based on many factors. Peter Siegel, MBA from BizBen & others discuss this topic.
|How Many Listings Is Too Many For One Broker To Handle? Is It 5? 10? 20?
Peter Siegel, MBA in this Vlog/Podcast discusses how many listings is too many for one business broker to handle at one time. Is it 5 is it 20? I recently had a coaching call with one of my BizBen broker clients who asked that question this week. There are many factors that go into the answer.
|Buyer Beware: Does A Company's Culture Effect The Sale Of A Small Business?
When purchasing a small to mid-szied CA business, there are a many items to evaluate. One area that is often overlooked is the business's office culture. Peter Siegel, MBA with BizBen discusses with business buyers the importance of understanding how the business "feels" on a day-to-day basis.
|What Is The Typical Business Broker Fee For Sellers And Buyers? Who Pays It?
Was just asked the question from a business owner what the "typical commission" amount is for a broker or agent and if upfront fees are common? Thought this might be a great Discussion topic on BizBen for both business owner/sellers and potentially for business buyers (buyer representation).
|Selling My Small Business: What Items Should I Have Ready To Be Successful?
When selling a small to mid-sized business, owners should have their paperwork and financial information ready to go! They should also have a short business plan of past history, current operations, and potential for the future. In this BizBen Discussion several advisors and intermediaries weigh in.
|Tips When Using Escrow Bulk Sale Services When Buying Or Selling A Business
The final part of the business for sale transaction is the escrow and bulk sale process by Peter Siegel, MBA (Business Purchase Financing Expert, ProBuy & ProSell Program Advisor) answers questions and describes the escrow and bulk sale process. Peter can be reached direct at 866-270-6278.
|See All News, Tips And Events|